By Jaimy Lee
The market’s erratic response to lukewarm medical research for COVID-19 treatment and vaccine candidates isn’t expected to slow down as investors pin their hopes for a recovery on the high-risk biotechnology sector.
“In the coming few months, the stock market, especially related to COVID-19, will continue to be volatile,” said Difei Yang, a biotech analyst at Mizuho Securities. “It’s driven by retail investors, rather than institutional investors…they react to headline news, and the market reacts.”
Case in point: on May 18, Moderna Inc. /zigman2/quotes/205619834/composite MRNA -3.84% became the first company to disclose data from a clinical trial testing a COVID-19 vaccine in humans. The preliminary data implied efficacy; however, the biotechnology company only shared data from eight out of 45 participants in the Phase 1 clinical trial. The stock jumped 20%, closing at a record high of $80.00, and the Dow Jones Industrial Average soared 3.9%, to finish at 24,597.37, erasing much of the month’s losses.
The next day Moderna's stock took a dive, closing at $71.67, with analysts attributing the drop to a Stat News story outlining skepticism among vaccine experts. The Dow tumbled 1.6%, to end at 24,206.86, near a session low.
The thing is, the story wasn’t particularly damning. It did raise important questions, including why the data was released for a percentage of the trial’s participants and why the National Institute of Allergy and Infectious Diseases hadn’t put out a news release or comments from NIAID director Dr. Anthony Fauci, as the federal agency had done with clinical-trial data for Gilead Sciences Inc.’s /zigman2/quotes/210293917/composite GILD +0.37% remdesivir. (Fauci later told NPR that the Moderna vaccine data “is really quite promising.”)
“Out of realm of its expertise, [the market’s] got a bias upward,” said Kristina Hooper, chief global market strategist at Invesco. “That creates an environment where you tend to see a very positive reaction by stocks to a development that might seem minor to health experts.”
There are two reasons behind the volatility: individual investors who don’t understand how drug development works may be simply reading a headline before investing in virus stocks. At the same time, there has been a shift in how medical research is disseminated as sites are now publishing COVID-19 studies before they have been vetted by other clinical experts.
“It’s a big pocket of froth. ”
Brad Loncar, CEO, Loncar Investments
Much of the scientific and clinical research that has been published since January about the coronavirus has been in the form of a preprint, a type of preliminary study that hasn’t been peer-reviewed. While preprint-style research has been around for decades, notably in physics, math, and economics, a pair of commonly cited preprint websites, BioRxiv and MedRxiv , for coronavirus studies were launched a year ago by Cold Spring Harbor Laboratory in partnership with The BMJ medical journal.
The publication of preprints has likely been a contributor to some of the market volatility, Mellon analyst Amanda Birdsey-Benson said. “They are giving a lot of false hope and a lot of disappointment.”
Separately, some top-tier medical journals have taken to publishing coronavirus research that has not been peer reviewed or is now going through a much speedier review process, perhaps due to pressure from the preprint sites, according to Ivan Oransky, a cofounder of Retraction Watch, a site that tracks retractions in scientific research, and VP of editorial at Medscape. For example, a study of eight people conducted over a few months is contextually “meaningless,” as is a single-arm study with 61 patients, he said.
“The preliminary nature of what I’ve seen published in top journals is eye-opening,” Oransky said. “It forces us to rethink what peer review means, what rigor means, and what prestige means.”
In recent months, the market has risen and fallen on preprint research, and virus stocks have soared and tumbled on limited data disclosures from clinical trials, in-vitro studies of experimental products that haven’t been tested in humans, or even the news that companies are simply planning to join the race. “It’s a big pocket of froth,” said Brad Loncar, a longtime biotech investor and CEO of Loncar Investments.